Auditing Standards and Continuous Auditing

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Auditing Standards and Continuous Auditing

• Lynford Graham
• Member, Auditing Standards Board
• BDO Seidman LLP

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Auditing Standards

• SAS 97 (Amends 50)
• Fraud (Amends 82)
• Revenue Procedures
• Management Override
• Risk and Materiality
• Business Risk Focus
• Interim (Amends 71)
• Sarbanes-Oxley Act
• Reporting on Controls

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Top 5 New Accounting Terms

• CEO
• CFO
• EPS
• EBIT
• EBITA

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(No Transcript)
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Continuous Assurance
Traditional Audit
Continuous Auditing

• Periodic Reporting
• Periodic Auditing

• Periodic Reporting
• Monitoring

• Continuous Reporting
• Continuous Monitoring

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CICA / AICPA
A continuous audit is a methodology that enables
independent auditors to provide written
assurance on a subject matter, for which an
entitys management is responsible, using a
series of auditors reports issued virtually
simultaneously with, or a short period of time
after, the occurrence of events underlying the
subject matter.
Not Practical
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Continuous Assurance

• Demand ?????
• Costs
• Limitations of Accountings Period Concept
• Standards Implications Should Not Rely
  Exclusively on Controls (Risk Assessment)

Regardless of the assessed level of control risk
of material misstatement, the auditor should
plan And perform some substantive procedures
tests for each material class of transactions
and account balances Draft Risk Assessment
Standard
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Audit Approach Comparison
Characteristic Traditional Approach Continuous Auditing Approach
Timing of Visits 4th Quarter / Post Year End Frequent
Use of Internal Reports Sometimes Key Information Monitored
Primary Audit Strategy Detailed Substantive Testing Controls and Analytics throughout the year. Targeted sampling.
Resource Needs Post 4th Quarter Throughout Year
Control Risk Completion of tests of controls at preliminary. Focus on Automated Controls
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Continuous Auditing Approach
Q1
Q2
Q3
Q4
Monitoring, Planning and Execution
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Trends Supporting More Continuous Auditing

• We need to move toward a dynamic model of
  current disclosure of unquestionably material
  information. Harvey Pitt http//www.sec.gov/news
  /speech/spch523.htm
• Audit Resource Management
• Quarterly Reporting

• SEC shortens 10K 10Q filing date windows
  (8-27-02)
• Standards
• Fraud (SAS 82)
• Risk Assessment (SAS 55, 94)
• Interim Reporting (SAS 71)
• XBRL
• Facilitates Timely Reporting

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Language in Draft Standards

• auditing involves a continuous process of
  gathering, updating and analyzing information
  throughout the audit. Accordingly, the sequence
  of the requirements and guidance in this
  statement may be performed differently among
  audit engagements. Proposed Fraud Standard
• an important management responsibility is to
  establish and maintain internal control on an
  ongoing basis. Managements monitoring of
  controls includes whether they are operating as
  intended and that they are modified as
  appropriate for changes in conditions. Proposed
  AU 319 revisions
• The characteristics of routine day-to-day
  business transactions often permit highly
  automated processing with little or no manual
  intervention. In such circumstances, it may not
  be possible to perform only substantive
  procedures in relation to the risk. Proposed
  Risk Assessment Standard

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Directions

• Neither Mandate nor Prohibit Continuous Auditing
• Best Practices /Guidance
• Periodic Reporting Model
• Trends More Timely Auditing and Reporting
• Effectiveness ??????

??????
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BDO Seidman

• Strategic Risk Assessment Software 2002 Compass
  Version 3
• BDO International Policy and Guidance
• Applications / Fieldtests

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Example Real Time Connection

• Real Estate
• Laplink MS Access
• Mathematica, Master View, FAS 66
• Master View Industry and Asset Info.
• IDEA Script

DB4 Timberline Prop. Lawson Cos.
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Questions / Comments